Most of the price levels highlighted in Today’s Big Stock are of the horizontal variety. They’re easy to identify and easy to trade off of. However, from time to time I also like to discuss important levels that are somewhat of a “moving target” in the form of up or down trendlines. One such stock forming an up trendline is that of PulteGroup, Inc.
PulteGroup, Inc. is a homebuilder in the United States. The company’s subsidiaries engage primarily in the homebuilding business. PulteGroup also has mortgage banking operations, conducted principally through Pulte Mortgage LLC, and title operations. Homebuilding, its core business, includes the acquisition and development of land primarily for residential purposes within the United States and the construction of housing on such land. Homebuilding offers a product line to meet the needs of homebuyers in its targeted markets. The company also has one segment for its financial services operations, which consist principally of mortgage banking and title operations. Its Financial Services segment operates generally in the same geographic markets as its Homebuilding segments. For the year 2011, it originated mortgage loans for 62%. Centex Corporation and Pulte Mortgage are the wholly owned subsidiary of the company.
To review PulteGroup’s stock, please take a look at the 1-year chart of PHM (Pier 1 Imports, Inc.) below with my added notations:
After bottoming out at below $4 during the fall of last year, PHM has been in a steady up trend since October. Along the way, PHM has formed a nice trend line of support (navy). Always remember that any (2) points can start a trend line, but it’s the 3rd test and beyond that confirm its importance. As you can see, PHM’s trend line is very important to the stock since it has been tested on (5) different occasions. Currently, the trendline support sits at around $8.50.
The Tale of the Tape: PHM has created a nice trend line of support over the last (6) months. A long position could be entered on a pullback to the trend line support with a stop placed under the entry. A short position could also be entered if PHM were to break the trend line of support.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT